Candles and Triangles

[james_gsx 16]

I have a question

 

Ascending triangles are typically considered bullish. I was looking at this chart and noticed a few key candle signals. The first is a doji above the resistance line, followed by another gap into the triangle. The inverted hammer before the doji has pretty strong volume, which would tell me plenty of sellers came to the market to push price back into the triangle. The second doji has a similar setup, except volume increased from the support line to the doji itself. Should that lead me to believe buyers are coming in anticipation of a breakout? I also noticed the previous trend was down - followed by sideways action before this triangle. Would that negate the bullishness of this triangle?

 

I'm not going to trade this, but I was just curious. Thanks.

 

[darthtrader3.0beta 10]

I have a question

 

Ascending triangles are typically considered bullish. I was looking at this chart and noticed a few key candle signals. The first is a doji above the resistance line, followed by another gap into the triangle. The inverted hammer before the doji has pretty strong volume, which would tell me plenty of sellers came to the market to push price back into the triangle. The second doji has a similar setup, except volume increased from the support line to the doji itself. Should that lead me to believe buyers are coming in anticipation of a breakout? I also noticed the previous trend was down - followed by sideways action before this triangle. Would that negate the bullishness of this triangle?

 

I'm not going to trade this, but I was just curious. Thanks.

 

 

I thought you died forever!!!!

**** what anyone says here...a candle pattern is a simplistic 4 point representation of tick data...if your not front running the otherside of the breakout of the triangle then you have already given up optimal trade position...who cares after that.

[brownsfan019 17]

James - I see some possible short positions there based on your resistance level and a candle pattern confirming it. You also have a possible profit target laid out with your trendline.

 

As for how to trade it, can't say as I have never studied the relationship of candle patterns w/in the context of triangles.

[brownsfan019 17]

I thought you died forever!!!!

**** what anyone says here...a candle pattern is a simplistic 4 point representation of tick data...if your not front running the otherside of the breakout of the triangle then you have already given up optimal trade position...who cares after that.

 

And what do you mean by 'front running'? Having a buy or sell stop sitting there or what? Interesting comment but nothing of substance provided to James to help.

[james_gsx 16]

I thought you died forever!!!!

**** what anyone says here...a candle pattern is a simplistic 4 point representation of tick data...if your not front running the otherside of the breakout of the triangle then you have already given up optimal trade position...who cares after that.

 

I see where you're coming from, but I wasn't looking at it from a one candle perspective. Rather, I was hoping someone could help me interpret the volume along with the candles in the triangle to see the flow of money. If that makes any sense.

[DbPhoenix 42]

I see where you're coming from, but I wasn't looking at it from a one candle perspective. Rather, I was hoping someone could help me interpret the volume along with the candles in the triangle to see the flow of money. If that makes any sense.

 

I guess I qualify as a someone, so I'll give it a try.

 

It may help to remember that triangles of all sorts (including wedges) form because sellers can't get the prices they want at the bottom (and so have to sell higher) and buyers aren't willing to pay what's being asked at the top (so sellers have to lower their prices). Sometimes this is nice and tidy. Sometimes it's sloppy.

 

In any case, the prelude: you've got a lot of supply coming in at that first major swing low about a third of the way in. But you've also got a lot of demand to meet that supply head on. Hence, (a) the high volume and (b) the halt of the decline. After that, supply is less, enabling price to rise on not much volume. But there's not enough demand for a sustained advance (though 17 points is nothing to sneeze at).

 

So sellers, smelling blood, come pouring back in again, and they even manage to accomplish a lower low. But now buyers come back in force, for whatever reason, and the volume comes in on the upside, not enough to reach the last swing high, but clearly buyers mean business. The question is, have they been doing their pushups and their cardio or not?

 

Price then makes a higher low and finally reaches the last swing high. But buyers don't have enough strength to absorb the supply and push price higher. So they take a breather and try again. They are able to manage an even higher low and a break past the last swing high, but this is quickly aborted by sellers who swamp them with supply (by this point, the pattern has become obvious to more people).

 

By now, buyers are tired, and they allow price to drop back below the last swing low. But they're not done. They dance along for a bit, creating a slightely higher low, then give it another shot. This time they give it a running start, hence the volume off support (or the "demand" line). And more people have seen what's going on and elect to participate. Is the increase in volume also indicative of greater seller participation? Of course. Buyers have to have somebody to buy from.

 

But buying pressure (or buying power, or whatever one wants to call it) has the upper hand. How do we know that? Price is rising. We also know, however, that even though buying pressure has the upper hand, it's also pretty feeble, just barely able to tip the balance. The biggest volume results in a pretty small bar, one which also falls back toward its low.

 

After this point, buyers strain to push price higher, but sellers don't have to try very hard to retard the advance. Hence the decreasing volume (if they had to try harder, volume would be higher, unless buyers gave up, in which case price would not be rising).

 

The positive note for bulls, however, is that price is finding buyers at higher and higher levels, which is why this recurring drama is considered bullish. But when push comes to shove (which is pretty much what triangles are all about), buyers have to pull it together at some point or else price will simply dribble off sideways, which it often does. The fundamentals of whatever this is just may not be conducive to providing more support than is necessary for price to hold more or less where it is, like the market's been doing for the past four months.

[rigel 10]

I guess I qualify as a someone, so I'll give it a try.

 

It may help to remember that triangles of all sorts (including wedges) form because sellers can't get the prices they want at the bottom (and so have to sell higher) and buyers aren't willing to pay what's being asked at the top (so sellers have to lower their prices). Sometimes this is nice and tidy. Sometimes it's sloppy.

.

 

Very good info. on price action in your post.

 

Am somewhat confused on the first para.

 

1) "Buyers aren't willing to pay what's being asked at the top (so sellers have to lower their prices)" - this is fine, easy to understand.

 

2) "sellers can't get the prices they want at the bottom (and so have to sell higher)" - Why would sellers seek prices at the bottom if they can sell it higher.

 

Should this be " Sellers are not willing to sell at lower prices (hence buyers have to bid it higher)"

May be I have got it wrong?

[DbPhoenix 42]

Very good info. on price action in your post.

 

Am somewhat confused on the first para.

 

1) "Buyers aren't willing to pay what's being asked at the top (so sellers have to lower their prices)" - this is fine, easy to understand.

 

2) "sellers can't get the prices they want at the bottom (and so have to sell higher)" - Why would sellers seek prices at the bottom if they can sell it higher.

 

Should this be " Sellers are not willing to sell at lower prices (hence buyers have to bid it higher)"

May be I have got it wrong?

 

 

"Have to" was not the best choice of words. But much depends on the objective of the seller. Just as "buying" can be comprised of not only buying with the intention of holding but also include short-covering, and in a range, even a triangle, you very likely have both.

 

Similarly, with "selling", you have people that are eager to unload what they've got because they're underwater and panicky, people who are short (in which case you want to "sell" at the lowest possible price), and people who are taking profits. In stocks, you can also have those who are orchestrating the movements either to accumulate the stock for an eventual markup into higher highs or to distribute what they have for an eventual drop into lower lows. This last can be detected by sudden withdrawals of either buying interest at tops or ranges or selling interest at lows. Even within the ranks of buyers and sellers, then, one can have intramural conflicts.

 

But none of that really matters here. Nor does motivation itself. What is important is the continuing shifts in weight between buying power and selling power and how they affect the movement of price. You may not know why price reverses at a certain point, but you can easily gauge the degree of participation (the volume) and the relative strengths of buyers and sellers (price movement).

 

And if the first paragraph still niggles, just delete it. It's not important to the course of buying and selling throughout the triangle.

[firewalker 10]

I have a question

 

 

James, mind telling us what instrument or stock this is? Curious to see how this one pans out.

[james_gsx 16]

The security in question was BHP.

 

Here is the current chart. Price dribbled off sideways, after very low volume at the trend line.